LDK Solar: Astounding Growth & Incredible Value

LDK Solar (LDK) has provided a preliminary outlook for 2009 in its press release of 8-25-09, stating: 

In addition, the company today provided the following preliminary outlook for 2009.  2009 Financial Outlook:      

* Revenue: Between $2.8 billion and $3.0 billion

* Wafer shipments: Between 1.45 GW to 1.55 GW

In case you didn't notice, that is billions in revenue and billions in watts! These two numbers allow us to see that LDK Solar has broken the $2.00 per watt price barrier as well. Not bad for a company that has only been around for 3 years.

It is possible to calculate 2009 EPS preliminary outlook from the above if we know how many shares there are and projected margins for 2009. Recently, LDK had a secondary offering of 4.8 million shares bringing the total share count to 111.28 million shares. 

There is no doubt that the polysilicon plant expansions will help LDK Solar margins. How much remains a function of polysilicon prices, cost of manufacturing, and its own execution of the polysilicon plant expansion plans.

Recently, S&P analyst Angelo Zino projected LDK margins in 2009 will come in at 30%. This number seems reasonable as margins will certainly be impacted in a positive way with the opening of the 1,000 mt polysilicon plant this year and the partial capacity utilization of the 15,000 mt polysilicon plant next year. It is also possible that margins may be greater. 

As recently as 2007, UBS projected the polysilicon production would have such an impact to its bottom line that the company gave LDK Solar a 54.9% net margin projection in 2009. Due to the billions in revenue, small changes in margin have huge impact to EPS. Since the S&P report is more recent, and more conservative, we will use the 30% margin numbers for calculations that follow.

EPS is a product of revenue and margin divided by shares. Let's now take a preliminary look at EPS for 2009 using LDK Solar's preliminary outlook and the S&P margin.

 

This analysis arrives at astonishing growth in 2009 for LDK and is based on just 2 sources of reliable data. That is, LDK Solar's preliminary outlook for 2009 and a single S&P margin projection from Angelo Zino. It also supports a previous publication I wrote earlier. It is important to note that this article derives similar numbers in a completely independent manner. This lends credibility to the overall projections made here and earlier in the article entitled “LDK Solar – A New Business Model”. 

The immediate reaction to these numbers tends to be utter dis-belief. Yet, LDK is roughly doubling wafer capacity next year and adding polysilicon production to its business model. Dismissing these numbers may in fact be the worst financial decision for any investor interested in adding value to their portfolio. There is no hype here as these numbers are derived from LDK and S&P analyst Angelo Zino. The only added value that I've provided is a simple calculation from respectable sources.

Recently, LDK Solar is down from the low 50s to the upper 30s. It would appear that LDK stock has been punished by these events. 

• US Market Uncertainty
• Secondary 4.8 Million Share offering

It is ironic that LDK would in fact be pummeled in this manner, considering the secondary offering accounted for around 5% of the float and was accounted for on the day of the offering. The US market jitters has caused a pullback in investment across the board. LDK Solar is a Chinese company that is traded on the NYSE in US Dollars. Its valuation should be based on Chinese CNY exchange rates to the USD. The US dollar has fallen dramatically in relation to the CNY.  If anything, you would expect LDK to increase from this fact alone! 

It is my opinion that LDK offers huge upside potential for anyone who is willing to weather the storm on Wall Street, maybe even a safe-haven! There has been evidence of short covering on Wall Street and as the stock has recently dropped, it would be unreasonable that shorts have ceased covering their positions. Its extremely low price offers an exit point for the remaining shorts to cover. It is only reasonable that this stock will increase in value from this point forward as the number of shorts dwindle. 

With regard to market volatility, it would appear LDK should be somewhat impervious to changing market demand in a specific country. LDK has a wide global based customer list. Projected plant capacities are fully booked for 2008 and 2009. Many of these contracts are take or pay, 10% down contracts, guaranteeing revenue stream for LDK Solar.

 

Disclosure: I currently hold less than 1000 shares of LDK stock, at the time of writing this article.

Comments

[thehobe:]

It's about time someone is noticing the obvious value in this company. Even if there are delays in bringing up all of the polysilicon plant on the exact planned time, the future of this company will be pheonominal!

2008 Sep 24 02:45 PM

[SolarGuru:]

Hey, Phree, Shhhhh. I'm still accumulating this stock. It may be the single best investment for 2009 and beyond. As always, good article!

2008 Sep 24 03:48 PM

[grider:]

"Disclosure: I currently hold less than 1000 shares of LDK stock, at the time of writing this article." Looks like you double your holdings in over a month ;) LDK is perhaps one of the best buys in the solar industry at this time!

2008 Sep 24 04:02 PM

[whois:]

There have been times that this kind of figures would explode pps. It did not happen yet. The article gives a correct view with the figures at hand, given by trustworthy resources. LDK should follow-up to their guidance. In that case the figures are relevant and pps should follow.

2008 Sep 24 04:03 PM

[InvestBaboo:]

Talk about a total disconnect in the market with a stock and its prospects! As LDK gets pushed to new lows I have stood on the sidelines and wondered when this madness will end!

However I believe this is all about to change. The Senate passed a generous energy bill and it is just a matter of time before the light is shown on the hidden value in LDK. I expect LDK to be trading in the 60's by December.

2008 Sep 24 05:26 PM

[InvestBaboo:]

I expect these solar stocks to shine the remainder of this year:

LDK, JASO, SPWR, WFC, SOLR and CSUN

2008 Sep 24 05:27 PM

[Norwell:]

Don't you think the sector has been punished by the drop in the price of oil? When people were touting $200 per barrel, all of these stocks skyrocketted. Now that were down about a third to roughly $100, these stocks are down about a third. So, while I agree the numbers look fantastic, I think the price of oil will have a greater bearing on the price of any of these stocks.

2008 Sep 25 08:37 AM

[Jay Dhruv:]

I always wonder about why such a dynamic company like LDK is not crossing 100
but if you look at history of chinese adr's in US, there is something mysterious going on.

its as if hedge funds have been instructed not to put their money into chinese companies. Kramer also keeps on saying to invest in america and not chinese companies.

unless hedge funds come into this full steam. this stock might languish with pe of 3-4 and still will continue to underperform.

still I am like 70% of my money in LDK hoping that someday wallstreet will appreciate this. will wait till Jan 2009 before i get out of this position completely

2008 Sep 25 03:52 PM

[GoBlue78:]

The analysis is missing below the line expenses (R&D, SG&A) and income tax.

The conclusion of Buy is correct, though. Most recent 2009 UBS est (after all expenses and taxes) is 5.72/shr, 7.59 2010; uses 117m shares, as must use fully diluted count.

2008 Sep 27 02:36 PM

[31October:]

LDK is dependent on its buyers coming through with cash. They have a quick ratio of <1, but debt/equity >1. Those ratios are fine for a booming growth company, but the credit crunch just went global. Therefore, risk of buyer cancellations arise. Although I have twice as much LDK stock as I do CSIQ, I think that CSIQ is safer. Cash flow from operations for both is almost identical. But CSIQ has a quick ratio of 1.6 and debt/equity of .29. It has the growth potential plus better ability to survive. LDK also lost its Chinese tax exempt status, so net income after taxes are set to drop. LDK is a great investment, but it's number 2.

2008 Oct 07 11:14 AM